Gold settles at lowest in nearly four months

Copper higher; study says 2010 consumption exceeded production

DeborahLevine

SAN FRANCISCO (MarketWatch) — Gold futures fell to their lowest in nearly four months on Thursday as Europe’s top central banker said the central banks of the United States, the euro zone and Britain are united against inflation.

Gold for February delivery
GCG11
declined $14.60, or 1.1%, to $1,318.40 an ounce on the Comex division of the New York Mercantile Exchange.

That was the lowest settlement for gold since Oct. 4, when the metal settled at $1,316.80 an ounce.

Gold investors, perceiving the key central bankers to be “on top of inflation,” could be selling in anticipation of lessened inflation worries, said Tom Pawlicki, a precious metals analyst with MF Global in Chicago.

Japan's credit rating downgraded

(1:57)

John Shipman reports Japan's credit rating has been downgraded by S&P.

At the World Economic Forum’s annual meeting in Davos, Jean-Claude Trichet, the president of the European Central Bank, said major central banks “are very united in purpose to maintain price stability” and anchor inflation expectations. Read more about Davos.

Gold had wavered between small gains and losses earlier in the session, but seemed to regain enough footing to spend most of the morning in the black.

The losses for gold puzzled most market observers because the stars seemed to be aligned for a rise on Thursday. Macroeconomic data painted a doubtful picture of the jobs market and a surprise decline for durable-good orders. In addition, the dollar came off highs versus major rivals.

Inflation touches a deep nerve in the gold market, as the metal is often seen as the ultimate storer of wealth and a sure beneficiary of unbridled price increases.

“The gold market remains vulnerable to more selling, as the ongoing fear of rising interest rates remains in place. The gold market might also remain off balance because of talk of excessive speculation in commodities at the Davos forum,” analysts at NS Futures said in a note to clients.

“Barring short-term weakness, we remain constructive on gold over the course of the year given a number of key long-term investment drivers remain intact,” they added.

On Wednesday, the dollar slipped against the euro after Federal Reserve policy makers agreed to keep interest rates at record-low levels and maintain a $600 billion asset-buying program. Read more on the dollar.

In recent foreign-exchange trading, the dollar index
DXY, +0.38%
which tracks the U.S. unit against a basket of six other currencies, edged down to 77.75 from 77.78 late Wednesday.

A weaker dollar makes dollar-denominated commodities, including gold, more attractive as they become cheaper for holders of other currencies.

Chile raises copper-price forecast on supply constraints

Copper for March delivery
HGH11
nearly halved an early advance but held to gains, adding 7 cents, or 1.7%, to $4.34 per pound.

Chile raised its copper price forecast to $4.17 a pound in 2011, from a previously forecast $3.40-$3.50 a pound, due to strong demand from emerging markets that “won’t be entirely covered by expected supply of copper,” Chile’s copper commission said in a news release.

Copper demand is expected to rise 5.4% in 2011, including a 25% rise in demand from Russia and a 6% rise from China.

Chile is the world’s top copper exporter. The commission also projected global copper mining output to reach 16.5 million tons in 2011, up 345,000 tons from the previous year.

Meanwhile, world refined copper consumption exceeded production by 404,000 tons in the first 10 months of 2010, compared to a surplus of 32,000 tons in the same period of 2009, analysts at MF Global said in a report to clients Thursday, citing the International Copper Study Group’s January bulletin.

World refined copper output in January to October 2010 was 15.802 million tons, while consumption totaled 16.206 million tons, they said.

Meanwhile, March silver
SIH11
turned lower after rallying more than 50 cents earlier. The contract lost 10 cents, or 0.4%, to $27.03 an ounce.

April platinum
PLJ11
settled higher, adding $6.60, or 0.4%, to $1,803.50 an ounce.

March palladium
PAH11
advanced after fluctuating between gains and losses earlier. The contract was up $8.90 cents, or 1.1%, to finish at $813.50 an ounce.

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